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Proposal to increase HST by 1%

The Association of Municipalities Ontario (AMO) is concerned that there won’t be enough money to pay for necessary projects and have been working on a solution since Spring 2015. Options to bring in more money included increasing fuel tax, starting a municipal income tax, a land transfer tax, increasing vehicle registration fees or taxing alcohol more. But the final choice is to increase HST by 1%. The funds raised (approx. $2.5B) would then be distributed based on a formula to all Ontario municipalities. Details of this proposal were presented to Northumberland County Council at their meeting on July 19, 2017.

Why

The reason given for this move is “to help fund critical local services like roads, bridges and transit, to help reduce the upward pressure on property tax bills, and to diversify how we fund local communities.” The project to look into this issue is called “Local Share”.

What

The proposal is the result of a review by AMO of finances for Ontario Municipalities and they determined that over the next 10 years, the total money required would be $13.2B/year. If nothing is done, there would be a shortfall of $4.9B per year and given the current level of debt in the Province ($341B), it was thought unlikely that the Province would be able to help. It was also thought that funding from a Sales Tax would be more predictable so would help long term planning. To determine the best source of funding, criteria were established. Funding should be:

Strategic and Forward-looking

Flexible

Accountable

Transparent

Good public and fiscal policy

Fair and Equitable

Sustainable

There were 44 possible sources reviewed but a 1% increase in HST best met these criteria and would be 4 times the size of the current Federal gas tax revenue.

The AMO commissioned a survey which found that Ontarians would approve an increase in HST of 1% if it all went to Municipalities.

Concerns

One concern that councillors had was that if funding is increased this way, other grants from the Province might be reduced. The intent is that this would be additional to other grants. Currently, the Ontario average is that 27% of Municipal revenue comes from Federal and Provincial grants.

Local Impact

Of the net $2.5B, AMO estimates that Northumberland County would receive $6.3M per year and Cobourg $2.8M. This would represent almost 9% of Cobourg’s current budget. The AMO hopes that this proposal would “reduce upward pressure on property tax” – that is, taxes would not have to go up so much. I would suggest that it could even mean a reduction in property taxes! That would be a first.

Update – August 17, 2017

"That's not something that I'll consider," Wynne told The Canadian Press in an interview before she was to address the AMO conference. "We're right now trying to help people get ahead ... People are having a hard time making ends meet, so this is not something that we would consider."

Wynne touted the government's previously announced plan to spend $190 billion on infrastructure over the next 13 years, noting that the federal government has also promised billions of dollars to address the province's aging systems.

The AMO did not acknowledge those plans in announcing its tax proposal, but said it expects municipalities across the province will struggle with infrastructure funding over the next decade.